August 9, 2022

ETrade’s ‘better mousetrap’ is its stock plan business, analyst says

It’s little wonder Morgan Stanley CEO James Gorman is singing the praises of ETrade Financial’s corporate stock plan business, which focuses on moving restricted equity shares that vest for senior company executives onto the home firm’s platform.

Unlike ETrade’s custody group for registered investment advisers, its stock plan conversion business is an industry leader, profitable and ready to plug into Morgan Stanley’s technology and platform.

“We’re seeing opportunities to grow through the stock plan business and conversion with ETrade,” Gorman told a group of investors during an online conference in June.

In the last year, Morgan Stanley pushed its way into the corporate stock plan conversion business when it bought the Canadian company Solium Capital Inc. for a price tag of about $900 million. The investment bank and wirehouse clearly has an opportunity to build that business once it closes its acquisition of ETrade, which is scheduled to occur before the end of the year, one analyst says.

Morgan Stanley’s transfer of stock plan clients to its wealth management platform “should improve by replicating [ETrade’s} better mousetrap,” according to a note this month by Steven Chubak, senior analyst for diversified brokers and banks at Wolfe Research.

Chubak wrote that in a recent meeting with the CEO, Gorman noted there was “a lot of low hanging fruit to capture from consolidating the [Morgan Stanley] and [ETrade] platforms and acknowledged that [the wirehouse] historically has not been particularly proficient at keeping client assets in house.

“Most importantly, Gorman is very optimistic on the opportunities in the corporate channel given [ETrade’s] strong competitive position and higher conversion rate,” Chubak wrote.

ETrade’s corporate services business is the leading player in the industry, with 2 million stock plan participants and $365 billion in total assets, he added.

[More: What will Morgan Stanley’s James Gorman do with ETrade’s custody business?]

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